refinancing

This is not an easy question to answer because it depends entirely upon the details and circumstances of the potential borrower and what they are trying to achieve.

Whenever anyone is looking to borrow equity from their home they could possibly do a refinance of their existing mortgage and then request cash back at the close of escrow.

Ideally they would be reducing their interest rate on the mortgage they are refinancing and then receiving the extra funds they requested and are happy with their decision.

They will have a mortgage payment to make each month and it might be larger than what they had been previously paying, because they have taken out cash from their equity and increased their loan amount, even if they reduced the interest rate.

The applicant will have to go through a lengthy Underwriting process, have excellent credit, job stability, cash reserves and enough income to meet the “debt to income” ratios and of course good FICO scores.

This can be a very stressful process as it is more difficult to qualify for traditional mortgages than it was in the past and a great deal of documentation must be “willingly” provided by the applicant to complete the loan process.

And of course, they will have points and fees included in their loan amount as well and depending upon the size of the loan and the interest rate they choose, those fees will vary.

But what if their current loan already has a low interest rate and they want to keep it?

They could consider a Second Trust Deed that would be at a Fixed rate, a Home-Equity-Line-of-Credit or if they are aged 62 or more, a reverse loan/HECM/Home Equity Conversion Mortgage.

Unlike a HELOC, an FHA HECM reverse mortgage will not record in a second position and any existing mortgages on the property will have to be repaid from the funds from the reverse loan.

As mentioned in my previous 2 posts, counseling by an HUD approved agency is required by the federal government prior to applying for a Reverse mortgage.

Now, that does not mean or obligate anyone who completes the counseling to apply for this loan, it’s simply an excellent option for anyone that is seeking accurate information about the HECM program and not be influenced by some of the myths that continue to circulate about it.

I can provide a list of some of these approved agencies and they do typically charge an $125 fee for their service. But it’s worth it, plus once completed the “applicant” will receive a HUD Counseling Certificate that verifies they have completed the counseling and if they decide to move forward on a loan application, they will need to give this to the Loan Officer.

Here is the remainder of the article about counseling that I have been sharing on my blog.

“Clarifying what makes the reverse mortgage become due and payable creates some surprise among prospective borrowers, Tetreault said, but it also opens the door to other questions that seniors might not have thought about previously, such as what happens if they do not pay property taxes and insurance payments on time.

“We talk about what their responsibilities are as reverse mortgage borrowers to make sure they do not put themselves at risk of foreclosure,” she said.

The million-dollar question

HECM counseling is a necessary stepping stone in the older homeowner’s journey to get a reverse mortgage. This decision is typically prompted by a significant need, whether that is the result of an unexpected personal issue or even the intrigue of using home equity to supplement retirement wealth.

In many cases, the million-dollar question is: how much money can I get from a reverse mortgage?

One of the things ClearPoint does off-the-bat is ask counselees how they plan to use the money they receive from a reverse mortgage; whether that means using these funds for daily or future expenses, paying off debt, etc.

In understanding what the loan proceeds will be used for, Tetreault said counselors can help prospective borrowers determine if a reverse mortgage is really the right product for them, or if there are other alternatives that might fit best with their financial plans.

At the end of the day, the decision to get a reverse mortgage hinges upon education and the awareness of what other resources are available to seniors that can help them accomplish their personal needs.

“Education empowers consumers,” Tetreault said. “Whether seniors take that information and decide to get the reverse mortgage or not, at least they are educated and have an understanding of all the choices and options available to them.”

In the next section of the article an example is given how downsizing actually frees up income for other uses by living in a smaller home and reducing the overall housing expenses.

It also mentions the various payments options, at which any time the borrower can change as they wish. There are not prepayment penalties on a Reverse loan, so if for any reason the borrower wishes to put money back into the loan, they can and it will increase their line of credit.

Here is the next section of the article that summarizes the discussion in regards to the Boston College ebook. I will share the last part in a follow up post.

“For example, downsizing from a $250,000 house to a $150,000 property can increase a person’s yearly income by $3,000 after calculating the difference in prices, moving and selling costs and how they affect yearly income. Additionally, this downsizing scenario can also free up $3,250 in yearly income when factoring the new housing expenses (taxes, insurance, upkeep and utility bills) associated with the less expensive home.

But for those who don’t want to task themselves with relocating, that’s where a reverse mortgage can be beneficial, the ebook notes, detailing several key requirements to be eligible for the loan along with critical Home Equity Conversion Mortgage (HECM) guidelines.”

At this time, the clock is ticking on reducing the Lending Limits on the federally insured Reverse loan program that is for senors age 62 or older. Currently the limit is set at $625,250 but it has been less in the past. The most recent amount was at $417,000 but due to the difficulties in the real estate sector and home values continuing to fall, the possibility of reducing the Lending Limit back to $417,000 is looming within the next several weeks.

At a time when seniors need more assistance than ever due to budget cutbacks on government sponsored programs and the potential for cutbacks on Medicare and Social Security, using funds from a Reverse loan are the only remaining option for financial relief. Hopefully, the current amount will remain in place and not reduced, eliminating the opportunity for a borrower to receive as much money as they can from a Reverse mortgage for their medical and cost of living expenses.

There is a pending bill, H.R. 2508 that has been introduced as of Friday, July 15th., requesting that the current Lending Limits remain in place for FHA loans but it’s not known if it will be passed or not. This would also include the “Forward” site of the loan program that has made home ownership possible for millions of Americans and it would keep that Lending Limit at the current amount of $729,750.

All we can do is wait for the House Committee on Financial services to review this important issue and there should be a hearing on it prior to October when the reduction would be taking place.

Let’s hope that that make the best decision for seniors, First Time home-buyers, the housing market and not wound it any further, just when everyone else is struggling in these difficult times and needs the resources to buy a home or stay in the one they currently own.

In the course of the nine years I have been a Reverse Loan Consultant, there have been many changes in the HUD program from simply one loan to several different options. In the last couple of years, we have seen a Fixed rate become available as well as a reduction in the costs of the loan to the borrower.

The new “Saver” program cuts the costs considerably and gives the senior an option of either a Fixed rate or a Line of Credit. And there is also an opportunity to use funds from a Reverse mortgage to purchase a home without having to qualify on income or credit.

Here’s a recent update on the volume of business in the Reverse loan industry:

“Reverse mortgage applications increased to 8,149 units during February, up 10.2% from the previous month according to data from the Federal Housing Administration.

While application volumes may not be as high as some would like, it’s up 22.7% from the same period last year.

During February, the seasonally adjusted annual rate for total applications rose 15.6% to an estimated 1,676,800. The actual count of applications was 114,215—9.8% over January which was seriously affected by very bad weather, said the agency. Of the total number of applications, 67,990 were purchase transactions; 38,076 were refinances; and 8,149 were for reverse mortgages.

In February, lenders endorsed 6,904 HECM units with a total max claim amount of $6.904 billion, up 6.8% from January. Of all the endorsements, 6,092 were traditional reverse mortgages, and 117 were for the HECM for purchase. HECM Saver volume continued to increase, reaching 296 units during the month, an increase of 79.4%.

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Dear Lorraine, You began the process for me, the process of breathing again. We were both working our display booths at the Ventura County buildings; mine with the County Fire Department and you represented your advisory company. As you descibed the highlights of a Reverse mortgage to me, it dawned on me that this could be the answer to my problem, ie., how could I pay for my wife's medical condition. After that lucky meeting, I checked out your company & found out it was doing business with FHA & apparently doing so without trouble. I checked out 3 other similar agencies, all with similar track records. So- I stayed with my original choice and didn't regret it for a single moment. So I thank you once again and strongly recommend your company to any other seekers of a compassionate and willing helper. Sincerely, Raymond A. O'Grady Newbury Park, CA
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